How to Hedge Your House

For the first time, investors can include single-family housing as an asset class in their portfolios.

During a Webinar Wednesday sponsored by Financial Advisor Magazine and Index Universe, speaker Robert Shiller mentioned that next week two New York Stock Exchange -traded investment products will be launched by MacroShares. Up Major Metro Housing, or UMM, and Down Major Market Housing, or DMM, are inventions patented by Shiller, the creator of the Case-Shiller home price indices. The products will follow, but not replicate in market price, the Case-Shiller Composite 10 home price index, an index that tracks the single-family resale housing markets in 10 major U.S. metropolitan areas.

For those who don't own, and don't intend to own, their own home these products allow exposure to an asset class with low correlation to many asset classes and negative correlation to bonds. For those who own their own home, but are over-allocated to that investment in their overall portfolio, it allows, with DMM, a hedging position to be established against declining home prices. For those that intend to buy a home, but are worried about increasing prices, that risk can be hedged via UMM.

The two investments will constitute portfolios consisting of U.S. Treasury securities invested in trusts of equal initial value on the day of introduction. The duration of the trusts will be five years from the initial offering date. The net asset value of each fund will be adjusted by transfer of assets between the funds as the supporting index changes. The index is reported monthly as a three-month moving average, with a delay of nearly two months. The two funds will have trading characteristics similar to closed-end funds, in that they can trade at premiums or discounts to net asset value, or NAV.